Lucisano Media Group (BIT:LMG) shares have had a really impressive month, gaining 31%, after some slippage. The full year gain of 16% is pretty reasonable, too.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

View our latest analysis for Lucisano Media Group

Does Lucisano Media Group Have A Relatively High Or Low P/E For Its Industry?

Lucisano Media Group's P/E of 7.97 indicates relatively low sentiment towards the stock. If you look at the image below, you can see Lucisano Media Group has a lower P/E than the average (14.1) in the entertainment industry classification.

Lucisano Media Group's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

Lucisano Media Group's earnings per share fell by 12% in the last twelve months. But EPS is up 21% over the last 5 years. And EPS is down 11% a year, over the last 3 years. This could justify a low P/E.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.